Monday, February 09, 2009

Qs RSI(2) Zippy

With the Qs in seriously uber-bought territory as mentioned in the weekend update, I though it might be fun to employ a very simple (short only) RSI(2) reversal system to the Qs and test the results. Turns out simple works pretty good. . . a theme I've explored before in depth.

I call this system Zippy, named after my first cat and also reflecting the way the exit signals trigger. In this case I've used multiple exits, either a fixed bar (6) or a close less than the 5 bar moving average. The entries are premised on a long term declining market close (less than the MA 150) and an RSI(2) cross above 62.

Now these conditions don't reflect the current Qs scenario laid out this weekend or reflect the RSI(2) current 90+ readings. Battle weary traders know from experience that a high probability tactic for the Qs now is to wait until the RSI(2) crosses below the "magic number" 90 (or whatever you've predetermined as the target reversal threshold) before initiating shorts.Nevertheless, patience is the watch word here, and when the Zippy setup does occur down the road, this is a great low risk approach to harvesting some gains.

The max consecutive losers is only 1 and the intraday drawdown is minimal, reflecting the type of risk control I prefer. Zippy will become one of the BZB Qs Dirty Dozen systems, to compliment the IWM Dirty Dozen. . .see right panel of blog for details.The current rolling over of Zippy's equity curve may be an indication of a changing in momentum in the Qs as suggested by the 4 linear regression study this past weekend.As usual, TS 2000i code for Zippy is shown below.

And. . .as has happened before with these systems, there's a little counter intuitive logic here.The first question a quick glance at this code would typically generate is "what's with the RSI 62 number. That seems way too low". But you've got to keep in mind that we're selling weakness here, not strength. As the Qs in a downward trend try to recover, Zippy finds that a reading of RSI62 (isn't that a fib number?) provides a great tell for a failed rally.

The second question a quick glance at the code should generate is "what's with the exit signal that requires a close less than the Average. Shouldn't that read "more than?""Nope, and the same answer applies. Most of the gain from this system derives from the 6 bar fixed exit, but we do pick up a few extra bucks and increase our trade probability considerably if we confirm the downward trend with this little condition.And you thought trading was easy.

Disclaimer

Indio, California . . After 27 years of trading, I'm still exploring market dynamics. I daytrade options and sell premium decay longer term using NYAD, VIX & MAs combined with pivots and PSAR triggers. These posts reflect my humble research and are not solicitations to trade. Bob Barnes is not a certified trading advisor or licensed investment professional. I am not liable for damages arising from your investment actions made after reading this blog. Trading is inherently filled with risk and you alone are responsible for your decisions. I do not receive remuneration from web sites, authors, brokers or funds which I may refer to in this blog. Contact me at bzbtrader@aol.com